Banking reform requires a backbone. Now

With 41 votes in the Senate, the party of no will only get louder. Can Democrats find a spine?

By Andrew Leonard
Published January 20, 2010 6:02PM (EST)

At How the World Works, we like this kind of responsiveness from our president! Yesterday, I begged Obama to please, pick a fight with the banks. Today, the New York Times reports that on Tuesday, Obama had a one-on-one meeting with Chris Dodd, the lame duck chairman of the Senate Banking Committee who has been waffling on regulatory reform. At issue: the fate of the Consumer Financial Protection Agency (CFPA).

While administration officials declined to discuss the Obama-Dodd meeting, one said the president's proposal for a consumer protection office was "nonnegotiable." The administration sees political advantage in that position, believing that a consumer protection agency is the element mostly likely to be popular with the public in a complicated bill.

Coming days after Mr. Obama proposed a new tax on the nation's biggest banks to recover taxpayer losses from the 15-month-old financial bailout, the meeting on Tuesday suggested the White House would become more active in taking on industry lobbyists who have gained the upper hand in the Senate, winning support from Republicans and some moderate Democrats.

The timing is right. Also on Tuesday, Elizabeth Warren, the Harvard professor and TARP watchdog who originally conceived of the CFPA, urged supporters to call and e-mail their representatives in support of the measure.

We have all worked hard to make the CFPA into a reality, and the next few weeks will determine whether our hard work will make a difference for families or whether families will lose once again. The next few weeks will determine whether families will have to play by rules written by the banks and for the banks -- rules that let the industry get away with anything. In my view, we cannot let families lose again.

Like you, I read last week that the consumer agency is dead. I also read the same thing last spring, last summer, last fall, and last month. And I've been warned about the power of the banks since I first developed this idea in 2007. We always knew this was a David v. Goliath fight, but I don't believe that Washington can or will let Wall Street act like nothing has changed.

This is not the last important moment in the fight for the CFPA, but it is a critical one. You can count on me to do my part. Please help.

But economist Mark Thoma, directly responding to my post, still wonders whether a full-bore assault is the right strategy.

We've got a lot to lose if we don't get meaningful financial reform, so just as with health care, if what we can get through Congress actually improves conditions in financial markets, we need to take what we can get and hope to build upon it later. The question is how to construct a political strategy that will allow us to get as much done as possible. It may be that aggressively going after big banks can create public support for reform, support that would be difficult for politicians of either party to ignore. But there's also a chance that such a strategy will harden the resolve of those now opposed to reform making it harder to get anything done at all....

So a second question is whether the baseline level of reform we could get without an all out, "jettison the middle road" strategy is acceptable. If it is, I'd prefer to protect that and proceed cautiously. My loss function is asymmetric. Getting something, even if it isn't as much as we'd like, is much better than nothing at all.

But Thoma's analysis, published before Scott Brown's victory in Massachusetts, breaks down in light of the new electoral reality. The Republican strategy to oppose any Obama initiative is working. Don't expect that to change now that they have 41 votes. Republicans don't want a Consumer Financial Protection Agency, and now they have the power to stop it.

So let's make them. I'm with Paul Krugman. Make the Republicans vote, and force them to take responsibility for the failure to pass meaningful reform. And then remind voters of that fact, every day from now until November.

If there's one lesson to be learned from Obama's first year it's that caution did not work. It is high time to go on the offensive.

Andrew Leonard

Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21.

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